AER supports committee approved tax reform bill despite compromises

The substitute bill on the tax reform measures that came out of the Committee on Ways and Means in the House of Representatives is not the ideal version. It falls short of the original proposal, filed by Rep. Joey Salceda.

That said, the substitute bill is an acceptable compromise. Despite the compromise, the tax reform bill will stand further scrutiny in the plenary deliberation and in the Senate. We want improvement. We will continue to be vigilant and make sure that the bill will not be further diluted and that the essential reforms will be secured.

We call on all pro-poor legislators to pass the comprehensive tax reform program that upholds fairness and equity, ease in tax administration, and social justice.

We are of course happy that the proposals of the Department of Finance (DOF) on the personal income tax reduction have been retained in the substitute bill. Our workers and income earners will have substantial gains in their take home pay as their effective income tax rates are reduced. Meanwhile, the combined household income of the top 1,000 income earners will be slapped with a marginal income tax rate of 35 percent. All this makes income taxation more fair and progressive.

The increase in the petroleum excise tax, although implemented on a staggered basis, is welcome. The increase is necessary to correct and update the rate from its 1997 value. However, we are concerned that the Ways and Means Committee did not include indexation of the petroleum tax to inflation. Indexation is an important element of the reforms to prevent, at the very least, the further erosion of future tax collection from petroleum products. We look forward to improving the bill by re-introducing the automatic indexation of petroleum tax to inflation.

We are happy that some of the structural problems of the current value added tax (VAT) system have been addressed with the removal of exemptions, especially with regard to housing and cooperatives. This will prevent the revenue leakage arising from evasion and corruption as entities exploit the exemptions to game the system.

Further, the substitute bill proposes excise tax rates for autos that have the effect of lowering revenue. We think this is a happy compromise between Finance and Trade and Industry departments, given the latter’s goal to revive the automotive manufacturing program.
The incremental revenues from the different elements of the reform will fall short of the original target of the DOF. The compensatory measure, taxing the sugar-sweetened beverages (SSBs), included in the substitute bill should be studied further. Introducing taxation on SSB is good but the proposed rate is illusory and is arguably an extreme position. The rate can be adjusted realistically without sacrificing health and revenue objectives.

Given all this, it becomes relevant to get additional revenue from the sin taxes, including a higher unitary tax on tobacco products and future adjustment on alcohol rates, which remain moderate.

In sum, AER calls on our legislators to improve the substitute bill and resist any attempt to further dilute it. (END)